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FRM Part II · FRM Exam Part II · Tokenization and Financial Market Inefficiencies

Which feature of tokenization most directly allows a single transaction to combine, for example, a securities transfer, a payment and a tax withholding step without intermediaries reconciling separate ledgers?

Composability on a shared programmable ledger lets securities transfers, payments and rule-based steps like withholding execute in one transaction. This avoids reconciling separate ledgers, unlike conventional processes using separate custodian databases, manual netting or longer settlement cycles.

  1. AComposability of assets and conditions on a shared programmable ledgerCorrect
  2. BUse of a longer settlement cycle
  3. CReliance on separate custodian databases for each asset
  4. DManual netting at day end

Explanation

On a shared programmable ledger, assets and rules can be combined in one transaction, so multiple steps execute together. Separate databases, manual netting and longer cycles are features of the fragmented conventional process that tokenization aims to replace.

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